Dow Theory is based on the work of Charles Dow over a century ago. It is considered the oldest stock market indicator that’s still followed by a lot of traders. Dow Theory is a set of rules used to identify major bull and bear markets. Although there are many parts, the most popular component of Dow Theory focuses on the relationship between the industrials and transports. An important breakout in one must be confirmed with a corresponding breakout in the other.
Dow Theory warned of trouble in late 1999 a few months before the dot-com crash in March 2000. It sent a buy signal in April 2009, almost exactly at the start of the greatest bull market run in history.<< Back to Glossary Index